2017 (12) TMI 747 - AT - Income Tax

Reopening of assessment - addition of bogus purchases - Held that - AO reached at a fair conclusion that assessee has obtained accommodation entries from these two parties and then notice u/s 148 of the Act was issued. It shows that Assessing Officer has applied his mind to the information received from third party (in the case from the CIT, Central-2, New Delhi). Hence, no fault can be found in the reopening proceedings initiated by the ld AO. Assessee has already recorded the sales of the goods allegedly purchased from these bogus parties. Further, the ld CIT(A) has categorically stated at page No. 39 of his order under the heading actual transaction that goods have actually been purchased from grey market by cash payment from the cash generated outside the books of account and on quantitative details shown by the assessee, it has to be reasonably presumed that assessee purchased material from market in cash and bills were obtained from the above two bogus concerns of the accommodation entry provider. Therefore, it is apparent that the addition of whole of the amount cannot be made. Therefore we direct the ld Assessing Officer to restrict the addition @25% of the total purchases of ₹ 5247565/- from these tainted parties. Accordingly, the addition is restricted to ₹ 1311891/- and balance addition of ₹ 3935673/- is deleted. Enhancement made on account of commission paid for the alleged bogus purchases - Held that - As the purchases made by the assessee from the above two parties is conclusively proved to be bogus, naturally assessee has paid commission to them for arranging the purchase bills. The estimate made by the ld CIT(A) is also reasonable and therefore, confirmed. Hence, ground No. 8 of the appeal is dismissed. Addition of 20% being additional GP earned by the assessee - Held that - As perused the reasons for making such enhancement by the ld CIT(A), however, as no evidence is available with respect to earning of such higher income by the assessee and further, the profit arising on the sale of the goods has already been offered for taxation by the assessee, there is no justification in making further addition on this count.

Issues Involved:
1. Validity of the reassessment proceedings initiated by the Assessing Officer (AO).
2. Legitimacy of the additions made on account of bogus purchases.
3. Enhancement of additions by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue-wise Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The primary issue was whether the reassessment proceedings initiated by the AO were lawful. The assessee contended that the reassessment was invalid as the statutory conditions and procedures were not met. The AO had issued a notice under section 148 based on information received from the Chief Commissioner of Income Tax regarding accommodation entries provided by certain entities. The AO examined the information and concluded that the assessee had obtained accommodation entries from these entities, leading to the issuance of the notice.

The assessee relied on several decisions from the coordinate bench where similar reassessment proceedings were deemed invalid. However, the Departmental Representative (DR) cited judgments from the Hon’ble Gujarat High Court and the Hon’ble Delhi High Court, which upheld the validity of reassessment proceedings based on tangible material received from external agencies. The Tribunal concluded that the AO had applied his mind to the information received and had valid grounds to initiate reassessment proceedings. Therefore, the Tribunal found no infirmity in the reassessment proceedings and dismissed the assessee's grounds on this issue.

2. Legitimacy of the Additions on Account of Bogus Purchases:
The AO had added ?52,47,565/- to the assessee's income, considering the purchases from M/s. Vishnu Trading Company and M/s. Bake Bihari as bogus. Additionally, the AO made further additions for commission paid on obtaining bogus accommodation entries and estimated gross profit on these purchases. The CIT(A) enhanced the total addition.

The Tribunal considered the judicial precedents cited by both parties. The Hon’ble Supreme Court and the Hon’ble Gujarat High Court had previously upheld additions to the extent of 25% of bogus purchases. The Tribunal noted that the entire purchase consideration could not be added, as the assessee had recorded the sales of the goods allegedly purchased from these bogus parties. The Tribunal directed the AO to restrict the addition to 25% of the total purchases, amounting to ?13,11,891/-, and deleted the balance addition of ?39,35,673/-.

3. Enhancement of Additions by CIT(A):
The CIT(A) had enhanced the addition by ?2,62,377/- on account of commission paid for the alleged bogus purchases. The Tribunal upheld this enhancement, stating that it was reasonable given the circumstances.

Regarding the further addition of 20% amounting to ?10,49,513/- as additional gross profit, the Tribunal found no justification for this enhancement. The profit arising from the sale of the goods had already been offered for taxation by the assessee, and there was no evidence of higher income. Thus, the Tribunal deleted this addition.

Conclusion:
The appeal was partly allowed. The reassessment proceedings were upheld as valid. The addition on account of bogus purchases was restricted to 25% of the total purchases, and the enhancement of commission paid was confirmed. However, the additional gross profit enhancement was deleted. The general grounds raised by the assessee were dismissed due to lack of specific arguments. The order was pronounced in the open court on 13/12/2017.

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